Weekly In Review
July 6, 2009
Match or No Match, 401(k) Contributions Are Critical
Noting that one-quarter of employers have either already cut or plan to cut their 401(k) match, financial advisers are reminding investors of the importance of saving for retirement.
Most people contributed only the amount that employers matched, and without that incentive, financial planners and 401(k) consultants worry that contribution rates will go down. In fact, the average contributions fell from 9.2% in September to 8.8% in April, according to Mercer. The 401(k) consultancy recommends that people 55 or older contribute 25% a year to recoup losses from the market downturn in two years, or 15% for five years.
'Greed Will Come Again,' Eventually, Bill Gross Says
Get ready for subdued economic growth in the years ahead, as fear and frugality will dominate the mindset of U.S. consumers for at least a generation,PIMCO's co-CIO Bill Gross says in his July investment outlook. He projects annual GDP growth rates in the U.S. of 2% a year, down from the historical 3.5%.
"Greed will come again. But for now, the trend is the other say, and it promises to persist for a generation at a minimum," Gross said.
More than $15 trillion of wealth has been eliminated since early 2007 and the unemployment rate is near 10%, Gross pointed out.
He writes: "Our economy's lights, if not switched off in a rehash of the 1930s Depression, have certainly been dimmed in a 21st century version likely to be labeled the Great Recession. U.S. and many global consumers gorged themselves on Big Macs of all varieties: burgers to be sure, but also McHouses, McHummers, and McFlatscreens, all financed with excessive amounts of McCredit. What a colossal McStake."
Returning 48%, Bill Miller Proves He's Still Got Game
Bill Miller, manager of the Legg Mason Opportunity Trust Fund, is showing that he's still got game. With the fund returning a stunning 48% in the second quarter, it is the No. 1 performing U.S. stock fund for the period. By comparison, U.S. stock funds rose an average of 19% in the quarter, and the S&P 500 rose 17%.
Adviser Confidence Up 4%
Adviser confidence in the economy and the stock market grew in June, according to the Rydex adviser confidence index, which rose 4%, to 104.02, from the May level. This was the index's second consecutive monthly increase and its highest mark since October 2007.
The index measures progress in interest rate spreads, money supply, stock prices, consumer expectations and building permits.
"Right now, it is: 'Things are less bad than we thought.' Somehow that has become good," said Peter Wheeler, an analyst at Wheeler/Frost Associates.
Hedge Funds to Return 6%
Hedge funds appear to be on track to deliver returns of 6% or better in the second quarter, their best quarterly performance since 2000, Merrill Lynch analysts project. Thus far for the quarter, hedge funds returned an average of 2.7% in April and 4.4% in May. The rally this year, following declines of 19% in 2008, has buoyed a number of high-profile hedge funds, including the Tudor BVI Global Fund, up 12.4% year-to-date through May, and the Maverick Fund, up 8.8%.
"I believe there's been a very big change of mood, and it has come at least three months earlier than I was expecting," said Christopher Fawcett, chief executive officer of Fauchier Partners, a London hedge fund.
The poor performance has taken a severe toll on hedge funds, which had redemptions every month since May 2008 through May of this year, when they finally netted $3.4 billion. In the fourth quarter of 2008, investors pulled $152 billion from hedge funds, and in the first quarter, they took out another $103 billion.
Recession Over by 4Q09, S&P Believes
Standard & Poor's is predicting an end to the recession by the fourth quarter of this year, and positive GDP growth next year of 1.3%. However, Sam Stovall, S&P's chief investment strategist, said that while recovery is imminent, we're likely to see another decline in the markets before we get there. The S&P 500 Index hit its low on March 9, when it was down 25% year-to-date, and then had a subsequent mini-recovery with a 37% increase, before stalling again this month.
Stovall points to past recoveries from bear markets, where price declines have followed initial bounces. Since 1933, there has been an average of a 14% decline in prices following an initial recovery period, he said. Once the market experiences this correction, Stovall said that it has historically risen by an average of 36% in the following 12 months.
Alec Young, S&P's international equity strategist, sees the recovery being led by emerging markets in Asia, rather than the United States. He predicts GDP growth in China of 7% in 2009 and 8.1% in 2010. Young also favors countries that provide the commodities to fuel China's growth, such as Canada and Australia.